Workers comp crisis

Too often, all Nevadans have to do to see what their next crisis will be is look to the west.

And that's probably got some businessmen worried as they watch California's workers' compensation system fall apart. Premiums have doubled this year, tripled in some cases. Dozens of insurers have gone under financially and others have left the state. Injured workers say they're having more and more trouble getting companies to pay them their benefits.

For once, however, Nevada officials and the head of this state's largest workers' compensation insurer say what's happening on the other side of the Sierra Nevada won't happen here.

"A lot of the problems confronting California are similar to the problems Nevada was confronted with 10 years ago," said Doug Dirks, head of Employers Insurance Co. of Nevada (EICON). "And they were addressed in the 1993 legislative session.

California completely deregulated workers' compensation in the mid-1990s resulting in intense competition for business.

"Price cutting was to the point where all of them were selling their insurance product well below cost," Dirks said.

That was possible because the economy was booming and insurers made their profit by investing the money they were taking in.

When the boom ended and the bottom dropped out of the stock market, the investment income evaporated and companies with artificially low rates found themselves running in the red. Some were forced into insolvency. Some decided to pull out of the California market. Those that stayed hit employers with huge increases.

Cliff King of the Nevada Insurance Division said Nevada law contains protections prohibiting insurers from selling insurance for less than cost.

"In California, they went to open rating which means everybody can sell for what they want," he said.

Nevada, he said, "has got a somewhat controlled environment." Companies have to file those costs with the insurance division, which has actuaries review and adjust them. He said every carrier must base insurance premium rates on those filed and approved costs.

"So the only part they can compete with price-wise is the expense portion of the rate and that's only 25-35 percent of the total rate," King said. "We're in a much better position than California because we do not allow carriers to deviate from those loss costs."

The insurance division this week will begin reviewing the loss-cost filings that will be used to base premium rates in 2004.

Dirks said just as serious in California are medical inflation and the the lack of tools to control utilization.

"Not only are costs of medical services going up, but the amounts of medical services being used are going up even faster," he said.

Medical costs increased 24 percent per claim between 2001 and 2002 in California. And even as the workers' compensation crisis deepened, Gov. Gray Davis signed a bill increasing maximum benefits to injured workers 47 percent this year to $602 a week. By 2005, the maximum will reach $840 a week.

"We've already been through it and our statutes can help control both over-utilization and some of the price increases," he said.

He pointed to laws allowing use of generics and formularies "which allows us to control the use of extremely expensive drugs."

"I've not seen any increase in utilization in Nevada, in part because of managed-care statutes Nevada adopted back in '93."

Roger Bremner, who heads Nevada's Division of Industrial Relations, also said the Silver State hasn't seen big increases in premiums or in uninsured claims.

"With business being bad, we get a lot of complaints from the little guys that it's harder and harder to pay their premiums, but it's not like in California," he said.

He too said Nevada has more tools in its statutes to prevent California's workers' compensation crisis from moving to Nevada.

California Insurance Commissioner John Garamendi told reporters last week the situation is so serious, the system could suffer a melt down if the Legislature doesn't act this year.

Dirks said the situation shouldn't have been a surprise.

"California deregulated electricity, they deregulated workmen's comp," he said. "You look at those and think maybe that's why some industries need to be regulated."